Money sitting in the bank?  Savings certificates already yield more than 1%

Money sitting in the bank? Savings certificates already yield more than 1%


At a time when consumers face a sharp rise in the cost of living due to rising inflation, the sharp rise in interest rates by the European Central Bank (ECB) represents yet another hole in the budget of families that have housing credit. THE monetary authority raised the interest rate on deposits by 75 basis points at the September meeting and analysts estimate that a new strong rise (50 or 75 basis points) could be announced in October.

As long as inflation in the Eurozone does not show sustained signs of slowing down, the ECB should continue to raise interest rates, and expectations point to the ECB rate is around 2% at the end of the yeareven if the economy intensifies signs of weakness and goes into recession, as many economists already predict.

The worsening of the energy crisis in winter is a “dark cloud” hanging over the European economy, but, after months of complacency, the ECB is now focused on controlling inflation. Even if the window of opportunity to raise interest rates is closing, the tightening of monetary policy will continue at full speed until the interest rate is at a level that contributes to the cooling of prices.

This is bad news for families, especially those who took out loans to buy a house or other purposes. But not all. Those with accumulated savings are now starting to see the trend of receiving almost zero remuneration for their money invested in guaranteed capital products is reversed and losing purchasing power.

This is what has happened over the last 10 years, when Euribor rates have been around 0% (and even in negative territory for a long time) due to the ultra-expansionary monetary policy of the ECB, which has driven interest rates to historic lows. to support the economy during recent crises.

The sudden reversal in the monetary policy of the ECB is motivating a movement of the same magnitude in the Euribor rates, which serve as an index for the interest rate on mortgage loans, but also as a reference for the remuneration of some guaranteed capital products. The 12-month Euribor is already above 2%, while within 3 months went from negative ground, in July, to close to 1% at the end of last week.

Portuguese prefer deposits…

Despite the almost null remuneration of term deposits, the Portuguese have significantly increased the money they place in the bank in current or term accounts. Deposits currently represent around two-thirds of total savings, denoting the strong aversion to risk on the part of households..

Data from the Bank of Portugal show that deposits from individuals reached 183 billion euros in July, which represents the highest value ever. Since the beginning of the year, the “stock” of household bank deposits has increased by €9.8 billion, after having already risen by €11 billion in 2021.

As can be seen in the graph, regardless of the moment of the economic cycle or the return offered by banks, the growth trend in the volume of deposits has been constant over the last few years. One trend that generates greater concern at a time when inflation in Portugal is at 1994 highs (despite the slight decrease in August to 8.9%).

Also read: Term deposits: what you should know

…but savings certificates are back on the radar

It is impossible to find applications with guaranteed capital (or very low risk) that can, at this time, counteract the effect of inflation. O real return will always be negative on products subscribed in the coming months, but there are options similar to deposits that are starting to become attractive. And with much higher returns.

We are talking about the “old” savings certificates, almost forgotten by the Portuguese in recent years due to the low interest rates. As this state savings product is directly linked to Euribor, the The rise in the yield is as fast as the ECB is now reacting to the rise in inflation.

The gross interest rate for savings certificates that are subscribed in September, as well as the capitalizations of the current Series E, was set by the IGCP at 1.43%. In net terms, the remuneration already exceeds 1% (the release rate of 28% is retained), the highest value of the last decade, which doubles the net 0.46% for those who subscribed to savings certificates in June.

Although this return is still far from the current inflation rate, the savings certificates are, at this point, the best alternative among guaranteed capital products and an option to be considered by risk-averse investors who are not available to seek higher returns on the capital market (which carry the risk of capital loss).

It is likely that banks will increase the remuneration on term deposits, but this is not yet visible and the adjustment process should be much slower. Especially after, for many years, banks have suffered the impact on margins with the ECB deposit rate in negative territory.

The most recent data from Banco de Portugal show that the average interest rate on new deposits stood at 0.09% in Julya slight increase from 0.04% in the previous nine months.

Also read: Savings and treasury certificates: Weigh pros and cons before investing

Euribor rate for savings certificates

In the case of savings certificates, the rise is faster due to the method of calculating the rate. Corresponds to the average of the three-month Euribor values ​​observed in the ten working days prior to the antepenultimate working day of the month, plus 1 percentage point. In the month of August, this average was 0.43%, so, adding 1 percentage point, we arrive at the remuneration decreed for September of 1.43%. The fee is limited to a maximum of 3.5%.

By purchasing savings certificates, you are directly financing the State. These products have a term of 10 years, a minimum subscription of 100 euros (100 units at 1 euro each) and a maximum of 100 thousand euros, interest is capitalized every three months (rate changes at the end of each period) and there is a permanence premium (0.5% between the beginning of the second year and the end of the fifth year, and 1% from the beginning of the sixth year).

Savings certificates can be redeemed as soon as the first maturity occurs, and this must be done after the capitalization of interest (every three months), so as not to lose this remuneration. For example, if you subscribed on September 1, 2021 and redeemed on October 1, 2022, you will lose one month of interest. these products can be subscribed at CTT counters, at Espaços Cidadão and through the AforroNet website (must be adherent).

Read also: Brief history of Euribor: Guide to understand what’s coming

Return could reach 3% in 2023

Although a net return above 1% is already appealing when compared to what deposits offer, it is the prospects for the coming months that make savings certificates more appealing.

If the 3-month Euribor remains stable until the end of the month (currently it is at 0.934%, but it is likely to maintain its upward trajectory), the gross rate of this savings product will approach 2% on subscriptions made in October. A significant improvement over this month, which translates into a net return of 1.4%.

If economists’ forecasts and prices in futures contracts traded on the markets are confirmed, the ECB will raise the deposit rate to 2% at the end of the year. Bearing in mind that, normally, the 3-month Euribor trades “almost” at the central bank’s reference rate, the index will also be at these values ​​at the end of the year. Assuming this scenario, the savings certificates subscribed at the beginning of the next year may show a gross remuneration above 3% (net above 2%).

The same applies to savings certificates already subscribed and which bear interest at the beginning of the next year. You permanence premiums are another factor that reinforces the attractiveness of certificates in times of rising interest ratesas they start contributing soon after the first year of subscription.

It is not, however, guaranteed that ECB interest rates will remain at higher levels for long. Everything will depend on the evolution of inflation, but also on the economy. If the pressure from high prices continues, the ECB may even continue to raise interest rates beyond 2%. If there is a visible tendency for inflation to slow down from record levels and the recession becomes a reality in the Eurozone, it is likely that the ECB will ease monetary policy, which will penalize the return of savings certificates.

What about Treasury certificates?

Savings certificates were once a very popular savings product among the Portuguese, having lost a lot of steam in recent years, also because the State launched new sources of financing for families.

Those who remained with the Treasury certificates subscribed in the first years after the Troika, when Portugal went back to financing itself on the markets, already managed to periods with double-digit returns (above 10%). A remuneration that justifies the fact that the “stock” of these products remains at high levels, especially when compared to savings certificates.

The outstanding balance of Treasury certificates stood at 17.2 billion euros in July, well above the 13.3 billion euros invested in savings certificates. Still, the trajectory is different. The volume of Treasury certificates drops by 650 million euros in 2022, while net subscriptions of savings certificates increased by 813 million euros. They even reached the highest level since May 2011, a sign that many Portuguese are already betting on these products, waiting for a sharp rise in remuneration.

In Treasury certificates, there is no such incentive, since the interest rate is disconnected from the Euribor evolution (at least directly). The securities that are currently available for subscription, the Treasury Savings Certificates (CTPV), pay a gross interest rate of 0.7% in the first two years, growing later to reach 1.6% in the last year. From the third year onwards, the interest rate is increased by a premium that is calculated taking into account the change in Portugal’s GDP.

Os CTPV have a term of seven years, presuppose a minimum investment of one thousand euros and pay interest (not capitalized) once a year. Redemption is possible after the first year. The Treasury Certificates Poupança Mais (CTPM) and the Treasury Certificates Savings Growth (CTPC), with much more favorable conditions, are no longer available for subscription.

Taking into account the current market conditions and the prospects for the evolution of interest rates and monetary policy, the savings certificates are at an advantage over CTPV and at a large distance from bank deposits. For risk-averse households, they represent an opportunity to minimize the loss of purchasing power that results from high inflation.

Also read: Savings Certificates: what you need to know

Nuno Carregueiro

Born in 1977, he has been a journalist since 1999. He began his career at Jornal de Negócios, where he spent more than 20 years, occupying various roles, always focusing on online. He is currently an independent journalist, subscribes to the daily market newsletter Morning Call and collaborates regularly with ECO. Graduated in Management at ISEG, he has a special interest in everything related to the financial markets.

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